A new study shows that fees for 401(k) and similar plans continue to fall. The survey, conducted earlier this year, has 117 respondents from defined contribution plans with $127 billion in aggregated assets and 1.4 million plan participants.
Why do fees continue to fall?
According to the survey publisher, plan sponsors have been looking for ways to promote fairness and transparency within these systems. This has resulted in a majority of plans being contracted on a fixed-dollar basis.
Many employers have switched to plans that require fewer hours spent on day-to-day administration and quarterly statements, which results in lower fees. The study showed that the average asset-weighted expense ratio for record-keeping services to these plans is currently 0.42 percent, down from the 2006 level of 0.57 percent.
Since 2013, contracts for record-keeping fees were modified by 82 percent of plans. This has led 51 percent of plans to adopt a fixed-fee record-keeping arrangement. Fixed-fee arrangements mean that vendors charge plan sponsors a flat-dollar amount per each employee to pay for the plan’s services.
The survey also uncovered a few other new details being found in plans. For instance, lifetime income offerings, such as in-plan annuity, are now an option with five percent of plans. This is a change from zero percent in 2012.
Brokerage widows allowing participants to select from a wide range of publicly available investment options were offered by one in four plans in 2006, but in 2016, almost 49 percent of plans had this feature. However, only one percent of participants sign up for this feature. What remains unchanged is company stock. It remains a fixture in retirement plans and is offered in 28 percent of plans. Sixty percent of public companies offer employees their own stock as an investment option.